BusinessDay contributing editor

Treasurer Joe Hockey delivers the 2014 budget speech in the House of Representatives.

While everyone's been off chasing weasel words, the centrepiece of Joe Hockey's first budget has been largely overlooked and its major new ideological commitment understated.

First and foremost, Tuesday night's effort was the government's bookkeeping estimates and policy outlook for the next financial year.

So it is Joe Hockey's policy preference then, that Australia should have lower growth and more unemployed rather than fess up to the modest reality of federal government debt.

And the bottom line is that Hockey is promising lower growth than the previous two years and rising unemployment.

After nine months in office, looking forward to the next 13, the Treasurer is telling Australian business that economic growth will be a tad worse than that of 2012-13.

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According to the Reserve Bank, the economy right now is growing at better than 3 per cent.

Hockey's budget says GDP growth will slow to 2.5 per cent after doing 2.75 this year. We managed 2.6 per cent in 2012-13.

The latest couple of months of labour market statistics show an unemployment rate that has come down to 5.8 per cent. Hockey's budget says it will rise to 6.25 per cent and stay there.

The figures don't match the "growth" and "build" spin of Tuesday night's rhetoric.

As for the attempt to create an "infrastructure prime minister" image for Tony Abbott, it's all further out. To the extent that there is some new federal infrastructure funding -on top of the overblown lumping of existing and possible federal, state and private spending - it arrives too late for 2014-15 when the downturn in major resources construction spending hits.

So let's cut through the Treasurer's verbiage to the budget papers' Table 3 and its "estimates of expenses by function".

The item "transport and communication" shows spending will drop from $8.5 billion this financial year to $7.3 billion in 2014-15.

It's projected to pick up thereafter to $9.7 billion, but by then the budget papers say unemployment will already have risen and become stickier.

Meanwhile, those under 30 finding themselves without a job will have to rely on charity to survive for six months as they compete with the unemployed over 50 who can offer prospective bosses a $10,000 incentive to be taken on.

(As an aside, the same estimates table shows education spending falling from $29.7 billion to $29.5 and total expenses trimmed from $415.3 billion to $414.9 billion, though the government could reasonably discount Hockey's $8.8 billion RBA reserves fiddling in this year's "Labor" budget while it counts the revenue dividends in future "Liberal" budgets.)

Lower private investment

Hockey lays the blame for weaker growth under his government at the feet of the private sector for not being willing to invest more as resources investment shrinks. Despite improved household consumption and dwelling investment, private sector investment has been revised sharply lower.

But at the same time, public (government) demand is heading down as well.

From growth of 1.75 per cent this year to 1.5 next and just one per cent. The RBA has been warning for years that public demand is running at half of what has been normal. Now it's to fall to a quarter.

It looks like the lessons of JM Keynes don't figure very highly in the Liberal drys' text books. Instead of holding off trimming the deficit for another year, the politics of debt chanting with a whiff of Tea Party influence mean the government is doing extremely little to bridge the resources construction gap.

The very real debt problem we're heading towards has to be faced and the budget begins to deal with it.

But as all but the most doctrinaire coalition hacks acknowledge, that problem lies further out than 2014-15. There is no budget emergency or crisis this year. The government is running on a quite conservative level of gearing that wouldn't worry any private sector CFO.

A matter of preference

So it is Joe Hockey's policy preference then, that Australia should have lower growth and more unemployed rather than fess up to the modest reality of federal government debt.

That's rather more important to grasp than the noise about sound and reasonable decisions to reinstate fuel excise indexing and limit pension indexation to the CPI.

It's also worth regretting in passing that Hockey didn't break some other promises that deserved to be broken – promises made for base political motives and to the detriment of good policy.

If Hockey could be honest instead of a politician, he might admit regret that Labor hadn't brought down last budget's FBT and superannuation changes a year earlier, as they would now happily be in place and the nation would be better off. If Labor is successful in opposing the indexation changes this year, I suspect a future Labor Treasurer would have similar secret regrets.

Move to 'competitive federalism'

But bigger than this year's cutting and slicing is a statement of intent to run with the Commission of Audit's recommendation of "competitive federalism", a policy that sounds nice in free market chat rooms, but in the real world tends to result in a race to the bottom and making poor states even poorer.

There was something rather cowardly about failing to mention the budget's biggest shock in the budget speech itself.

Hockey was too busy waffling on with fanciful infrastructure numbers to even mention that, oh, by the way, we're flicking the heavy lifting we're supposed to be sharing back onto the states. There's $80 billion in health and education funds that they have been budgeting on over the next decade that won't arrive.

There is an acknowledged game afoot here, and it's to get the states to demand, to plead, to beg for a broadening and deepening of the GST, thus reducing the political cost to the federal party of breaking another promise.

The majority of tax studies are on the side of increasing the consumption tax side of our revenue collection. Just restoring it would be a good start.

Smaller government

But the health and education flick goes further than the GST – it's a key element in the right's push for smaller government.

Push more responsibility back onto the states and there's a better chance of a race-to-the-bottom limiting tax collection.

It also tends to mean a reduction in government services, but the right believes citizens should be buying those services from the private sector anyway.

This would represent a dangerous change to the mixed economy that has made Australia such a desirable place for most people to live.

It's also a path to greater inequality, to the rich doing better, at least in the short term, while the majority stagnate or go backwards.

One of the odder aspects of the budget and of the Commission of Audit is the assumption that tax revenue as a proportion of GDP shouldn't exceed a magic number of 24-point-something. There's no real rationale for this figure, plucked out of a different past. It just is.

That we're only a little away from that magic number anyway demonstrates yet again that Australia is among the lowest taxed developed nations.

There's arguably some cause-and-effect there about relatively low taxation and a well-targeted social safety net helping to keep us rich, but there also needs to be acknowledgement that, as our demographics change, the "right" level of taxation also may need to change.

IBISworld's Phil Ruthven – certainly no left-winger – spelt it out in a well-timed newsletter yesterday:

"We are the second lowest taxed nation in the OECD, far and away from the debilitating tax levels of the European Union (mostly over 40 per cent of GDP) and nations such as Brazil and Japan (whose taxes are nevertheless close to the OECD average of 37 per cent of GDP). Ours is under 30 per cent of GDP, and perhaps a little too low."

Philosophically, the Liberals' dry right rejects that. Whatever the taxation level is, it should be lower – and too bad about our changing dependency ratio.

The noise over the individual budget items has obscured this ideological standard, which has been unfurled for public view, but it's there in the budget papers:

Under the title "Reforming agreements with the States", the budget papers tell us:

"The Commonwealth does not run schools and public hospital systems and is not therefore best placed to drive efficiency in these areas. Commonwealth funding arrangements in these areas have reduced the incentive for States to be more efficient and accountable for their spending and delivery of services, and were unaffordable. This budget reduces growth in Commonwealth funding of these sectors over the medium‑term, generating momentum for longer-term reforms to be considered in the White Paper on the Reform of the Federation and the White Paper on the Reform of Australia's Tax System."

Only one shoe dropped with the budget on Tuesday night, but the creature upstairs may prove to be a centipede.